global tax dispute resolution & controversy services...global tax dispute resolution &...

Global Tax Dispute

Resolution &

Controversy Services

Tax Dispute and Controversy Update –

Exploring the trend of ‘Risk

Assessment’ and its current use in

Canada and the United Kingdom

Wednesday 20 May 2015

11:00 AM EST

2© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No

member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Notice

The information contained herein is of a general nature and based on

authorities that are subject to change. Applicability of the information to

specific situations should be determined through consultation with your tax

adviser.

Welcome

Exploring the trend of ‘Risk

Assessment’ and its current use in

Canada and the United Kingdom

Speaker:

Sharon Katz-Pearlman

Global Head, Tax Dispute Resolution & Controversy

KPMG International



Polling Question #1

In how many jurisdictions do you file income tax returns?

a) 1-4

b) 5-20

c) 20-50

d) Over 50

1

?



Polling Question #2

2

?

Where are you currently under exam?

a) Canada

b) UK

c) Both

d) Neither

e) Other jurisdiction(s)

United Kingdom

Speakers:

Kevin Elliott & Chris Davidson

Directors

Tax Management Consulting

KPMG in the UK



What are HMRC’s objectives?

• arrangements to minimise tax

• legislative interpretation

• inadequate system and processes leading to errors

(large business = £9.3 billion or 27% of the tax gap)To reduce the UK tax

gap of £34 billion

Effective allocation of resources to promote compliance, and

to prevent and respond to non-compliance

Non-compliance can

be in the form of:

Resources allocation



What is HMRC’s strategy for achieving those objectives?

Large Business directorate deals with 2,100 businesses with £200+ million turnover?

Risk assessment determines which businesses HMRC allocates more resources to?

Customer Relationship Manager for each business?

Mainly organized on an industry sector basis, e.g. Banking, Insurance, Oil & Gas?

Risk assessment should identify significant issues for risk working (audit)?



How does HMRC undertake risk assessment of large businesses?

Strategic level

• HMRC Large Business has a

tactical delivery plan which sets

priorities for compliance work

with large businesses – recent

focus on indirect and

employment taxes

Business level

• Inherent risks: Complexity,

Boundary, Change

• Behavioral risk: Governance,

Tax strategy, Delivery

• Low risk status

• High Risk Corporate Program

(£100 million tax at risk)

Entity level

Large Business

Risk Task Force =

Regular Business

Risk Review=

Detailed review

of tax filings

(if not low-risk)

=



Taxpayer obligations & approach for mitigating potential for disputes

Obligations?

Low risk-status – onus is on the business to drive the agenda with HMRC ?

COSO framework – tone from top – tax strategy through to tax risk registers?

Ability to demonstrate that inherent risks are managed through adequate behavioral management?

• complete and correct tax returns

• Senior Accounting Officer regulations

• Banking code of conduct



Is HMRC’s approach with large business working?

Approximately 40% of large businesses currently have low risk status?

45 large businesses have been through HRCP with 1,200 disputes resolved and

£10.5 billion of compliance yield

In the year to 31 March 2014 compliance yield was over £8 billion

Since 2011-12 HMRC has recovered £23 billion in additional compliance yield

from large businesses



The future?

Continue a risk based approach

Changing tone

Base Erosion and Profit Shifting

Spending Review 2015



Polling Question #3

3

?

Do you think that a risk based approach will make or is making a true

difference in the way the revenue authority approaches investigations?

1. Yes

2. No

3. Not sure

Canada

Speaker:

Paul Lynch

Partner, Tax

National Leader, Tax Litigation &

Dispute Resolution

KPMG in Canada



What are Canada Revenue Agency’s (CRA) compliance objectives?

Use over 2,000 dedicated audit resources to review and audit the tax affairs

of Canada’s largest corporate entities

To protect the integrity and fairness of Canada’s self-assessment tax system by

identifying, addressing and deterring those who do not accurately report their

activities or taxable income

To review tax matters and ensure offshore and aggressive tax planning issues and

risks are identified and addressed using integrated large business audit teams



Polling Question #4

4

?

Do you think a risk assessment approach will lead to:

a) More adjustments

b) Less adjustments



International and Large Business program results

Target change rate for international and large business audits: 75%

This program generates a “fiscal impact” of over CAN$6 billion annually

Fiscal impact consists of tax assessed, tax refunds reduced, interest and penalties,

and present value of future federal tax assessable arising from compliance actions,

but excludes the impact of appeals, reversals and uncollectable amounts



How does CRA undertake risk assessments of large businesses?

Information technology

innovation (adopting

new and innovative

analytics approaches) is

at the core of CRA’s

risk-based compliance

strategies, enabling

CRA to direct

enforcement resources

to the higher-risk

accounts

CRA is introducing and

implementing a new

integrated risk

assessment system to

better identify and

prioritize large business

files for audit

The new risk

assessment system is

an enhancement of

the existing National

Risk Assessment

Model



How does CRA undertake risk assessments of large business?

Decision made to undertake an

audit/macro risk identification

Assess and document risks – develop

an audit plan/micro risk identificationStandard Audit Risk Assessment Template

(SARAT) – Tier II risk assessment

National Risk Assessment Model

(NRAM) – Tier I risk assessment



Individual legal

entities > CAN$250

million revenue

Audit Protocol

Perpetual

Not relevant

Evolution of Tier I risk assessment

CRA’s Old Approach NRAM Approach Next generation NRAM

Size

Certainty

Audit cycle

Tax Governance &

Taxpayer Behavior

Individual legal

entities > CAN$250

million revenue

Rulings or real-time

assistance

None to regular

depending on ranking

Unclear how this could

feed into data analytics

model

“Groups” with >

CAN$250 million

revenue

Real-time audit

assistance

None to regular visits

Can be very relevant



NRAM Risk Factors

Audit history?

Openness and transparency?

Corporate structure (controls)?

Corporate governance (oversight)?

Participation in aggressive tax planning?

Unusual or complex transactions?

International transactions?

Industry issues?

Major acquisitions or disposals?



NRAM Risk Assessment

Overall Rating:

TSO: FPE 1:

Taxpayer

name:FPE 2:

Type of entity: Corporation FPE 3:

Identification #: L B Case #:

Primary NAICS code: Audit planned for CRA Fiscal Year: 2012/13

Behavioral ImpactLarge Files

Income Tax

Large Files

GST/HSTInternational

Aggressive Tax

Planning

Risk Rating

Complexity

Estimated

Hours

Transferability No No No No

Capacity Yes

ILBD Global – Tier 1 Risk Assessment?



Risk Assessment Distribution

CRA Large File Population Risk Assessment?

37%25%

38%

Low risk

Medium risk

High risk

Percentage of large file population



CRA meetings to discuss their new approach – sample questions

What are your top five priorities with respect to tax?

Do you have a formal framework for identifying and assessing tax risks

associated with normal ongoing operations? If so, provide information

on how risk is identified, managed, reported, monitored and mitigated.

What tax matters do the directors and senior management normally get

involved in? Are they proactive or reactive?

What tax intermediaries are used and what is their involvement in

tax risk management?

Do you have a tax strategy that is consistent with your

overall business strategy?

?

?

?

?

?



Higher risk industries

Financial Institutions?

Pharmaceuticals

Oil and Gas

Automobile and Manufacturing

CRA has four coordinating offices for

the following industry segments:



Next-generation NRAM

Applied to individual

legal entities

(approximately 29,000)

Use of new and

innovative data

analytics

Difficult to see how items

not submitted as part of

regular reporting process

can be factored into this

process (i.e. tax

governance)

Easy to see how

compliance data will

be used = extremely

important to take the

compliance work very

seriously in all

respects

Why? To enhance the risk assessment and workload

selection processes nationally, to further enhance CRA

compliance efforts on higher risk taxpayers, to leverage

technical capacity through workload portability, to

achieve audit currency for compliant taxpayers, and to

enhance CRA quality and integrity



Polling Question #5

a) Yes

b) No

5

?

Would you like someone from the Global Tax Dispute Resolution &

Controversy Services network to contact you after this webcast?

Thank You

If you are interested in speaking

with a KPMG professional,

please feel free to contact us at:

[email protected]

© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity.

Member firms of the KPMG network of independent firms are affiliated with KPMG

International. KPMG International provides no client services.

The KPMG name, logo and “cutting through complexity” are registered trademarks or

trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address

the circumstances of any particular individual or entity. Although we Endeavour to

provide accurate and timely information, there can be no guarantee that such

information is accurate as of the date it is received or that it will continue to be

accurate in the future. No one should act on such information without appropriate

professional advice after a thorough examination of the particular situation.

kpmg.com/appkpmg.com/socialmedia

http://kpmg.com/app

http://kpmg.com/app

http://kpmg.com/app

http://kpmg.com/socialmedia

global tax dispute resolution & controversy services...global tax dispute resolution &...

Documents